There are few in this world as close to the money of hardworking Canadians as the people who prepare our taxes.
As we draw ever closer to the filing deadline for this year, we asked tax preparers for their best money saving tips that the general public might not be aware of, but that you can keep in mind when you file your taxes this year.
Leaving Money on the Table
You can’t win if you don’t play the game and oddly enough, the same thing goes for your taxes. There are many tax credits and benefits out there that can help you save money on your taxes and make filing easier, but many people don’t take advantage of them.
“The number one reason people don’t apply for that credits that are out there is they forget to keep their receipts because if you make the claim and Revenue Canada asks for a receipt and you don’t have it, they’ll deny the claim and you may end up in a situation where you owe more tax,” says Lisa Gittens, senior tax professional at H&R Block who has been with the company since 1993.
Some of the most common deductions Canadians routinely miss out on are those for charitable donations and RRSPs.
“If you’ve made charitable donations within the year, keep your receipts and make your claim on the tax return. The same goes for RRSPs, especially if you earn more than $45,000 in a year because you’re going to see an increase in your return,” says Gittens who also notes that you can file past charitable donation receipts for up to five years.
Medical expenses are a deduction that routinely gets a lot of attention, since everything you pay for out of pocket that is prescribed by a doctor or a nurse counts as a medical expense, but there are aspects to these expenses that Gittens insists Canadians routinely ignore.
“If you’re paying a health premium to a private insurer or a private healthcare company, that yearly premium can be deducted as a medical expense on your tax return. If you’re travelling out of the country and you purchase travel insurance, that’s deductible as a medical expense,” she says. Medical recipts can be filed up to 12 months following the year on the receipt.
But some Canadians are missing out on benefits simply because they don’t think they need to file due to their low income.
“Make sure you file a tax return,” says John Fenton, media relations manager for Chartered Professional Accountants of Canada.
“Many lower income individuals, such as students, do not file a return and they can miss out on tax benefits such as the GST credit, the Canada Child Benefit or provincial tax credits. Also, where an individual has earned income but is not taxable, they can still accumulate RRSP room for the future and increase the potential for RRSP contributions,” he adds.
Take Advantage of Transfers
It may slip the minds of families from time to time that they can transfer income or credits from their children or spouse. All kinds of transfers can save you money on how much tax you pay as a family unit.
“For example, seniors can generally transfer up to 50% of their eligible pension income to a lower-income spouse — who may be taxed at a lower rate,” says Fenton.
This is a good idea because any expenses that exceed the lower-income spouse’s net income will be given as a deduction as long as those expenses exceed three per cent of that net income.
“If you have a child attending college or university, they may be able to transfer a portion of their tuition credit to you rather than just carrying forward an unused credit,” says Fenton.
In order to transfer a tuition credit from a student earning less than $11,000 to a parent or spouse, the student must file their return, report any tuition they paid and then any unused portion of their tuition credit can be transferred to their parent or spouse.
“The student files to report the tuition receipt and their indicating they want to transfer this amount to a parent or to a spouse. They file their return and then whoever the credit is transferred to, they can file after,” says Gittens.
Business Expenses and the Sharing Economy
Many self-employed individuals miss out on money saving opportunities because they forget to declare expenses related to their business.
“There are a lot of people who are self-employed or they’re employed and they do a little something on the side. As a self-employed person you want to figure out what category you’re filing into. Are you getting any kind of T4 statement or regular income from your employer. If the answer is no, then make sure you keep track of your expenses,” says Gittens.
Relevant expenses include supplies you buy for your business and any gas you buy to fill up your car on the way to fulfill duties related to your business. You’ll also want to keep track of the kilometres driven every year fulfilling duties of your business, and that’s only the beginning. For a complete list what of the expenses you can claim and how to claim them, visit the Canada Revenue Agency and their list of allowable expenses.
If one of the reasons you’re self-employed has to do with the sharing economy, such as Air BnB, there’s opportunity for savings there as well. Despite what many may still believe, income earned from Air BnB and Uber is taxable income, so keep track of your expenses in this area too.
“Ensure that your expenses are reasonable and keep receipts. The income you earn is business or rental income and you are allowed to claim reasonable expenses,” says Fenton.
“Also, it will be necessary to prorate some expenses assuming you use an asset such as a car or home for both personal and commercial use. Documentation is always important, but even more so for income from the sharing economy as you may be called upon to prove the expense was genuine and how much of it was personal,” he adds.
The form to fill out for Air Bnb is called a T776 – The Statement of Real Estate Rental when declaring your expenses. If those expenses exceed your income, you are entitled to savings.
“That loss on the rental is then applied to your employment income, so it can reduce the amount of tax they will have to pay on their regular day-to-day job,” says Gittens.
The same thing goes for Uber drivers, who must fill out the T-2125 Statement of Business or Professional Activities and can apply any losses between income and expenses to the return they file based on their day job income. As of July 2017, Uber drivers must also register an GST/HST number regardless of whether or not they make over $30,000 a year. If they are collecting GST, but also paying it out in the form of expenses, like gas and water for their passengers, they may be entitled to a GST rebate.
New Money Saving Opportunities
Unique circumstances can breed new ways to save money on your taxes as well. If you’re a person with a disability returning to work, speak to your doctor and have them fill out a T-2201A for the Disability Tax Credit. Once you have applied and it’s on file with Revenue Canada, you can claim a credit worth $8,113, which translates to the amount of income you won’t have to pay tax on.
“You can use the credit yourself, but if you don’t need all of it, you can transfer it to your spouse,” says Gittens, adding that there a lot of people who have heard about the credit who qualify, but don’t actually apply for it.
“If you heard about it 2017, but you were disabled for the last three years, Revenue Canada will allow you to adjust your previous returns over the last three years,” says Gittens.
You can still claim medical expenses even if you haven’t applied for the disability tax credit and if you are a caregiver of someone with a disability you are also entitled to a credit on your tax return.
“This credit varies because they’ve put three different credits together. The maximum amount you can claim right now is $4,667. The part to remember with the Canada Caregiver Tax Credit is if you have a disabled parent, child or spouse living with you who has an income, they will file their tax return and then you will file for this credit, which will entitle both of you to a tax credit on your return,” says Gittens who leaves Canadian taxpayers with this final caution:
“If there’s a tax credit out there that you can use, use it while it’s still available.”